When To Switch From Overdraft To Revolving Credit – A Timeline?

Namrata runs a wholesale packaging supply business. For the last three years, she used an overdraft limit of ₹12 lakh to manage delayed payments from clients. However, the limit was almost always used up to 90%. 

She ended up paying over ₹17,000 in interest every month. So, she analysed her cash flow patterns and consulted her lender. She decided to switch to a revolving credit line of ₹15 lakh with flexible repayment terms.

By doing so her monthly outgo was reduced by nearly ₹5,000. Additionally, she began regularly clearing part of her principal. 

This is not just a rare case. Many businesses nowadays are looking to shift to a revolving credit facility. As it offers you structured access to funds with the flexibility to borrow and repay multiple times.

What Does An Overdraft Facility Offer?

It allows you to withdraw more money than your actual bank account balance up to a sanctioned limit. It is a quick and flexible option for you to meet short-term financial requirements.

Best suited for:

• Unplanned expenses
• Sudden cash flow delays
• Temporary operational gaps

Key features:

• You will pay interest only on the used amount.
• There is no fixed repayment cycle.
• It is often linked to your business’s current account.
• Your limit is usually reviewed annually.

Understanding Revolving Credit

This facility gives you access to a credit limit from which you can withdraw, repay, and withdraw again during the approved tenure. It is typically structured with a defined repayment obligation, which could be monthly or quarterly.

Ideal for:

• If you need consistent working capital.
• If your business includes seasonal or regular revenue inflows.
• If your company is looking to manage cash in a planned manner.

Benefits include:

• It has lower interest than overdrafts in most cases.
• It has more predictable repayments.
• Its limit can be reused once repayments are made.

Comparing Overdraft And Revolving Credit

Signs That You Should Consider The Shift

1. High Usage of Overdraft

If you are consistently using your overdraft over 80%, it is a red flag. It shows that your business is heavily dependent on borrowed funds.

2. Static Outstanding Amount

If your outstanding balance is not reducing month after month. It shows that you are only paying interest and not reducing the principal.

Read More – Business Loan or Line of Credit – Best Financing for Small Businesses

3. Predictable Cash Flow

Your business with steady income patterns can benefit from structured repayments instead of paying interest indefinitely.

4. Issues with Overdraft Renewal

Your bank might not renew or reduce your limit if your usage pattern is risky or inconsistent.

5. Plans for Business Expansion

If you are planning to scale then overdraft is not for you. 

Cost Comparison – Practical Illustration

You can see that the revolving facility costs a bit more monthly. But it is also reducing your outstanding over time, improving your overall financial health.

Recommended Timeline To Make The Switch

Key Advantages Of Revolving Credit

Mistakes To Avoid While Switching

• You should not switch without proper planning.
  
  
• You should carefully read the fine print.
  
  
• You must not assume that it is always cheaper as it depends on your usage.
  
  
• You must not fail to prepare documents.

Final Thoughts

If you think that switching from an overdraft to a revolving credit line is just about choosing a different product then you are wrong. Because it is about selecting the right tool for your stage of business.

Also Read - How do RBI Guidelines Impact Overdraft Loan Rules in 2025

Overdraft will be beneficial for you if your cash needs are occasional and unpredictable. But if your income becomes regular and 

your funding requirements grow, revolving credit can offer you:

• Better control, 
• Lower interest, and 
• Financial discipline.

If you plan your switch properly and take action timely then you can save money and make your business financially sound.

FAQs

1. How fast can I get approval for revolving credit?

It may take 10 to 15 working days after document submission.

2. Are interest rates fixed in revolving credit?

They can be either fixed or linked to external benchmarks.

3. Is revolving credit more expensive?

Not necessarily. It depends on how you use and repay it.

4. Can I hold both facilities at once?

Yes, if the bank approves, but it should serve a clear purpose.

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LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?